Moving to GST: Can I Avail Input Credit on Closing Stock?

Last updated on July 13th, 2017 at 04:20 pm

Transition provisions in GST have undergone significant changes in the Revised Draft Model GST Law published on 26th November 2016. This post has been updated with changes in the revised draft law.

 

On the date of transitioning to GST, broadly there will be business who fall under any of the following categories:

  1. Businesses not liable to be registered under the current law, but are liable for registration under GST
  2. Business which are engaged in the manufacture or sale of exempted goods or services
  3. First stage dealer or a second stage dealer or a registered importer

1.Businesses not liable to be registered under the current law, but are liable for registration under GST

As per the Central Excise Act and Rules, a manufacturing unit is required to register if its aggregate clearance value crosses Rs 1.5 crores, and needs to discharge the duty. Similarly, under VAT, you are liable for registration if your turnover during the financial year crosses the threshold limit. The threshold limit differs from state to state.

Today, you may not be liable for registration as your threshold limit does not exceed the prescribed limit. However, you become liable to register under GST, if your threshold limit exceeds Rs 10 lakhs for Special Category States (Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand) and Rs 20 Lakhs for the rest of India.

2.Business which are engaged in the manufacture or sale of exempted goods or services

You may be currently engaged in the manufacture, sale of exempted goods or provision of exempted service, but on transition to GST, these are taxable.

3.First stage dealer or a second stage dealer or a registered importer

As a dealer, you are liable for registration under Central Excise if you trade in excisable goods. Today, the excise duty you pay will not be available as credit, as a first stage or second stage dealer adds the excise duty paid to the price of the product. If it is sold to a manufacturer, the excise duty passed on, will be claimed as CENVAT credit by the buying manufacturer.

Similarly, you need to register under Central Excise as an importer if you are importing the goods, and discharge the applicable import duty.

Under above mentioned scenario, the common question every business will have is “Can I avail Input Tax credit on the stock held on the last day prior to GST implementation”?

Yes, you will be allowed avail the Input Tax credit (CENVAT, input VAT, entry tax and Service Tax) held in the closing stock of inputs (raw- materials), semi- finished goods, and finished goods. However, there are conditions that you need to meet to be eligible to avail Input Tax credit held in your closing stock.

Eligibility conditions to avail Input Tax credit held in your closing stock

You can avail Input Tax credit held in your closing stock if,

    • The closing stock is held either in the form of raw materials, semi-finished goods, or finished goods, and must be used or intended to be used for taxable supplies.
      Conditions for availing GST ITC on closing stock
    • The benefit of such credit is passed on, by way of reduced prices, to the recipient.In current tax regime, duty/tax is added as product cost since the Input Tax Credit is not allowed. On transition to GST, ITC will be allowed, and this should naturally result in the reduction of base cost, and subsequently reduced final price to customersPrice reduction due to gst
    • You are eligible for input tax credit under GST. In GST, you are eligible for Input Tax credit if you are a regular tax payer only. A taxable person opting for composition levy under GST is not allowed to claim Input Tax credit.Eligibility for ITC on closing stock
      o

    • You have invoices or any other prescribed duty/tax paying documents in respect of the closing stock of inputs (including semi-finished goods and finished goods). 100 % input tax credit will be allowed if you have invoice or any other document evidencing tax payment. In the absence of such document, the credit will allowed as per table below
      18% & 28%
      60% CGST/SGST
      30% IGST
      5% & 12%
      40% CGST/SGST
      20% IGST

      Shortly we will be covering this in detail in our upcoming blog.

      Tax documents needed for claiming GST Input tax credit

    • The date of invoices or any other prescribed duty / tax paying documents is within 12 months from the date of transitioning to GST.Carry forward Input tax credit to GST
    • The supplier of services is not eligible for any abatement under the act.

 

Let us understand this with an example.

Ravindra Automobiles is a registered excise dealer in cars and car spare parts. On 1st June, 2017, Ravindra Automobiles purchased spare parts, and the details of transaction are given below:

Date Stock Item Qty Rate / qty Total Value Vat @ 14.5% Excise Duty 12.5%
01-03-2017 Spares 50 Nos 1500 / Nos 75,000 10,875 9,375

 

As on 30thJune, 2017, the closing stock of spares held by Ravindra Automobiles is 30 Nos.

          • As per the current tax structure, Ravindra Automobiles can avail the Input VAT of Rs 10,875 as credit, and can set this amount against the output VAT. However, excise duty is not allowed as Input Tax credit. Therefore, it is added to the product cost. Now, on transitioning to GST, Ravindra Automobiles is allowed to avail the Input Tax credit of excise duty on the closing stock held by them.

Let us consider the above example and calculate the excise duty on closing stock, which can be availed as Input Tax credit.

Closing Stock as on 30-6-2017 30 Nos
Duty Per Unit ( Total Excise Duty 9,375 / Quantity 50 Nos ) 187.5 / Unit
Balance Duty on closing Stock (Duty per unit 187.5 * Closing Stock 30 Nos ) 5,625

 

Now, Ravindra Automobiles knows that they can avail the excise duty of Rs 5,625 on the closing stock held, but are they eligible to avail it?

To be eligible, Ravindra Automobiles has to meet the following conditions:

  1. The closing stock held must be used or intended to be used for taxable supplies.
    Yes, the closing stock of 30 nos will be used for taxable supplies.
  2. The benefit of such credit must be passed on, by way of reduced prices, to the recipient.
    Since Input Tax credit is available, Ravindra Automobiles will no longer add this to the product cost. As a result the base cost will reduce, and subsequently result in reduction of price.
  3. They are eligible for Input Tax credit under GST.
  4. They should have invoices or any other prescribed duty/tax paying documents in respect of closing stock of inputs (including semi-finished goods and finished goods).
    Ravindra Automobiles has the Rule 11 invoice issued by their supplier (Manufacturer) in respect the closing stock of 30 nos.
  5. The date of invoices or any other prescribed duty/tax paying documents must be within 12 months from the date of transitioning to GST.
    The closing stock of 30 nos held is against the purchase dated 1-6-2017, which is within 12 months, from the date of implementation of GST on 1-7-2017

Ravindra Automobiles meets all the above conditions and is eligible to avail the excise duty of Rs 5,625 as CGST Input Tax credit.

 

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79 Comments

  • we are manufacturing yarn and fabrics if we have stock for export which is for more than year can we avail the input tax credit on that stock because invoices of that stock would be one year old.

  • Dear Sir,

    We are manufacturing yarn and fabrics , if we have stock for export which is lying for more than one year , can we avail the input tax credit of that stock, because the invoices of that stock would more than one year.

  • Hello,
    We are importer of goods under excise registration. We have old stock prior to 1 year.
    Can we avail the credit of CVD and Spl Addl of customs for the same.

    Please help.

    Regards,
    Bharat

  • My question related to excise input credit being non registered dealer under central exise.

    1. I am vat registered dealer , but not registered under central excise , as our end user are retail customers.
    We buy the exciseable goods from the authorised dealer /distributor of some manufacturer who is is also non registered dealer under central excise. Producer give them Invoice as per central excise rule Basic + excise + cst/vat , but distributor sell the material to us at price including excise ( without any indication of excise amount) + vat.
    2. My question, how to avail input tax credit for the the closing stock on account of excise already been paid but no value shown as bought from distributor under vat invoice.

    • This will be allowed as input tax credit. However, the manner and extent to which the input tax credit can be claimed is yet to be prescribed.

  • I am registered dealer under sales tax , but unregistered dealer in central excise. We buy exiseable goods where we paid excise duty and cst .After receipt of material, presently we sell the material by charging vat to customer.
    My question
    1. What will be condition to certify the amount of excise duty already paid for the closing stock value. Should we have to upload the Invoice received from the supplier/manufacturer for the closing stock value for getting input tax credit for such excise paid stock , when it is being sold to customer after GST implementation.
    2. We also pay CST @ 2% against C form, whehter we are elgibile to get input tax credit for closing stcok for CST amount already paid.

    • 1. Excise duty paid will be allowed as input tax credit. However, the manner in which it can be claimed and the extent of credit is yet to be prescribed.
      2. No input credit will be allowed on CST paid on the closing stock.

  • Sir we procure materials from whole salers. Excise duty is built in price. In such case how can we claim excise on closing stock. We receive invoice and in that invoice excise duty is not separately mentioned.

    • In this case, the closing stock has been subject to Excise duty but in the invoice, Excise duty is not shown. In this case, input credit of the Excise duty will be allowed. However, the manner and the extent of input credit that will be allowed is yet to be prescribed.

  • We are first stage dealer under Excise,we receive goods under excise invoice as well as(where excise component is mentioned).& RegularTax invoice ,where only VAT Component is mentioned.
    Will i be able to take Excise credit on closing stock under GST,where closing stock includes both goods received under excise invoice & regular Tax invoice (where only VAT Component is mentioned).
    Waiting for your replay.

    • On an excise invoice, you can take full credit of Excise paid on closing stock. On a VAT invoice where Excise component has not been mentioned, the GST council has recently decided that credit upto 40% will be available. This will be allowed once CGST on the supply has been paid and proof of purchase has been furnished.

  • We are VAT registered dealer, file and pay regular VAT & CST returns, please clarify on excise duty input credit, as we mainly purchase from a interstate manufacturer, who charged us excise duty, are we eligible to get Input Credit for Excise duty for closing stock held.

    • No, as customs duty is not subsumed under GST currently, you will not be able to take credit of customs duty paid on imports. However, you can claim credit of CVD and SAD paid on imports.

  • Thanks for the article. My question- for the finished goods in stock which are in stock for more than 1 year since transition date of GST (say 1st April 2017 ), i.e the finished goods purchased prior to 31st March 2016 and still in stock as on transition date of GST , would not be eligible for input credit of Excise ? We are registered as Importer and would like to avail credit for CVD and ADI as input credit of GST , also for goods purchased prior to 31.03.2016, what are the provisions ?

  • What will be closing stock on 1.7.2017 after GST how we give invoice,I mean output tax,and other question that how we do cash sale, daily base,if any limit of cash sale (R1)please reply me of cash sale and credit sale and if we send dry fruits,kirana to other state on what tax, earlier as CST 2 percent,with C form and 5% without C form.

  • Nice informations,but I want to know about what’s GST,input, output of dry fruits,kirana and chemical,tea etc,if we purchased from out side Delhi and if we purchased from local,is it like today vat, input and out put or different from now days please, reply

  • Pls give the details that how we can avail input tax credit in closing stock,when i am puchasing from a same state by a wholeseller.
    I am a retailer.

    • Input tax credit on closing stock will be allowed in certain situations, such as on transition to GST, applying for registration, moving from composition to regular dealer, etc. As a retailer, if you are already registered, you can claim ITC on inward supplies from a wholesaler.

    • As a second stage dealer, the excise duty paid on closing stock held can be availed as input tax credit on transition to GST. For more information, you can refer the same blog.

    • Being a composition tax payer, you cannot avail input tax credit. On transition to GST, if you become a regular dealer, you are allowed to avail ITC on closing stock held.

  • Sir
    I am a computer hardware dealer cum service provider. However my service turnover is limited to around 400000/- and sales turnover of around 25 lakh. i am currently registered only under vat. What will the senario under GST for services?

  • I am first stage dealer registered under VAT & CST. I am not registered under Exise. My purchase is from the manufacturer who charges CED @ 12.5% plus CST @ 2% against C-form.I sell the material to registered dealers charging VAT or CST against form-C. Once the GST will be applicable, shall I get Input Tax Credit on account of Excise Duty and CST paid by me on my Stock-in-hand on the date of implimantation of GST.

    • Input credit of Excise will be available to the extent of 40%. No input credit will be available on CST on purchase.

  • Government is opting for mandatory HSN Code in GST.Kindly explain it.What it is and how it will be implemented at end user trader’s organization who sells to the consumer.

  • Pls explain whether dealers who are not registered with Excise can avail input tax credit on Excise duty paid till 31-3-17 and held as stock as on 31-3-17

  • In case of Ravindranath Automobiles I understand the Central excise matters in case of transition but in case Vat credit here is not cleared. That is for 30 remaining stock Input vat remaining with closing stock is Rs.217.5 * 30 = 6525/- Is it will be taken as SGST Credit as on 01/04/2017 if GST is implemented. As they have valid purchase documents and it is not more than 12 months old

    • On supplies to Government departments, tax will be deducted at source and a TDS certificate will be issued. You can claim credit of this tax deducted in your return.

  • on 1-4-17 if GST is implemented can we take Input tax credit of all the opening stock for Excise + VAT + Sr. Tax paid on input in 1 go ?
    Naturally Input Credit will be large will we get refund ? or it has to be adjusted against sales ( Output tax )? can we adjust 100% output against balance Input credit or it can be only in a certain ratio or against specific sale ?

    In above illustration Ravindra Automobile purchased spares on 1.03.17 supposing they sale this material after 1.03.18 ( after 1 year ) will they be allowed to take Input Credit ? this 1 year limit is only for 1 time applicability as on 1.4.17 or it will be applicable on all subsequent sales also ?

    • Input credit can be adjusted in whole. There is no restriction. The 1 year limit on invoices is for the purpose of transition to GST only.

  • If manufacture fully or partly export the finished stock, Input tax credit will transfer into bank account because same times the input credit will in crores.

  • I am Trader registered under MVAT (Maharashtra). We import computer parts & supply to resellers. Currently we are not registered under excise so cenvat custom duty is not taken into credit. Under GST can we take take cenvet credit on imports closing stock ?

  • I am a Plywood Dealer in Jharkhand.
    Here 5.5% VAT in Plywood.

    Suppose I have stock of Plywood as on 31..03.17 is Rs. 100000.00

    CASE 1. If the above material is purchased INTRASTATE after payment of VAT.
    No Excess Input c/f

    CASE 2. If the above material is purchased INTERSTATE against CST.

    In GST Plywood is in 12.5%, what is the effect of tax difference.

  • We are having Vat credit of around 70 lakhs. We are a manufacturing unit and having both Central excise and vat registration with around 100 crores turnover per year. How we have to take refund of 70 lakhs in GST regime?

  • Dear sir,
    Before GST Act come into effect , Assesses must be made aware of model Law rules, merits & de-merits and the interpretation at various levels to understand.

  • Dear Sir,
    sir purchase edible oil after this oils packing and sale. we are registered vat and c.s.t. only,how to maintain accounts , and how to get in put please explain this matter

  • Dear Sir,
    Please explain me . on 31/03/2017 a dealer (not registered under Central excie he has only vat registration) and have a VAT Balance of Rs.10000/ ( assume Vat Rate is 5%). The Stock in hand is containing Excise duty . from 1/4/2017 he hase to pay GST in higher Rate(18% or 26%). His Stock have already charged Excise duty by manufactorer and he is not direct purchaser from manufactorer. What is the treatment of this scenerio under GST .

  • dear sir
    my dealer in cement distributore in ap
    he was no CLOSSING stock IN HAND & BOOKS..
    but purchases in input ccf every year in VAT
    BUT THIS VAT CCF GO TO CARRY IN GST ???
    PLEASE..

  • How the credit of FG, RM & PM can be availed if we have opted for paying Excise duty on Abated rate with condition of not availing Input credit of Excise in current scenario.

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